Power Supply Transition

o The change in power providers is and has been an MPE Board decision.

o The decision to exit from Tri-State:

• In January 2023, the MPE Board (at that time) gave official notice of withdrawal to Tri-State. Spanning several years prior to this decision, the MPE board took a number of steps towards making the decision to exit Tri-State. A few of these steps included: asking for an exit number in 2019, participating in the proposed partial requirements contracts that Tri-State considered offering, and participating in Tri-State contract committee processes.

• In January of 2023, when the MPE Board (at that time) made the official decision to withdraw they cited the following reasons: concerns over the perceived financial stability of Tri-State, challenges associated with price predictability Tri-State, and flexibility constraints under Tri-State which made it difficult for MPE to meet the needs and requests of our members.

• Financial stability – In January 2023, one of the major concerns that led to the Board making this decision was the Board’s uncertainty regarding Tri-State’s financial outlook, which included a rising amount of debt at Tri-State, the withdrawal of United Power (Tri-State’s largest customer), and the fact that Tri-State’s credit rating had been downgraded.

• Price stability – Leading up to MPE’s decision to withdraw, Tri-State was working to get a new formula rate passed through Federal Energy Regulatory Committee (FERC). Through this proposed rate, Tri-State would ensure it recovers its expenses through the rates paid by its members. The MPE Board had concerns that the new rate, once in place, would make it more difficult for MPE to have certainty around power supply costs going forward.

o The decision to sign a Power Supply Agreement (PSA) with Guzman Energy:

• Once the Board decided in January 2023 to exit from Tri-State, a search for a new power supplier began. Guzman submitted a complete and strong response to MPE’s request for information (RFI) for potential power providers. Guzman was selected by the Board as the top of the four RFI respondents.
• In the PSA with Guzman, MPE has a fixed price for power every year, which helps to minimize wholesale power supply cost fluctuations.

o One of the major reasons the MPE board chose to transition power providers was for price stability. Since the cost of power is MPE’s largest expense, securing wholesale

power at a fixed rate helps ensure greater cost certainty for the co-op and, therefore, greater rate predictability for our membership.

o MPE is a not-for-profit cooperative, so the Board sets rates on an annual basis to cover the cost of providing electricity to the membership. Although the rates have not been set for 2025, after the transition to the new PSA (effective Feb. 1, 2025), MPE management anticipates reasonable, consistent rate increases throughout the length of the Guzman contract.

o MPE anticipates higher rate increases in the first 1-3 years of the power supply transition, followed by smaller rate increases for the remainder of the 20-year contract.

o MPE will continue to have transmission partnerships with Tri-State and the Western Area Power Administration (WAPA), MPE will be served through the same transmission systems that serve us today.

o Transmission prices and reliability metrics are federally regulated, and our agreements with Tri-State Transmission and WAPA are subject to that regulation.

o Guzman owns generation assets and purchases power from across the U.S., ensuring that electricity will be available even if a certain region or regions are hit by a severe weather event or other issue causing stress on the power grid.

o Guzman will not be responding to transmission outages; the work on transmission systems will continue to be done by the transmission owners (Tri-State and WAPA).

o Guzman will not be responding to distribution system outages; that work will continue to be done by MPE line crews.

o Just as with Tri-State, Guzman will have the responsibility of maintaining a balanced set of resources to make sure “the lights stay on” for us and their other power distribution customers, including other Colorado co-ops.

o Guzman has a mix of resources, including coal, gas, wind, and solar. For us and the other Colorado co-ops, Guzman and other power suppliers (including Tri-State) are mandated to continue to increase the percentage of renewable energy sources to meet state decarbonization standards.

o MPE’s contract with Guzman Energy includes resource adequacy considerations above current requirements. Simply put, resource adequacy ensures that power suppliers have more than enough power to continuously meet the need for electricity despite fluctuations in power generation. As power suppliers move toward a generation portfolio that relies more heavily on renewable sources, which are more variable than traditional base load generation, resource adequacy requirements will likely increase. This is why it was an important factor in our new power supply agreement with Guzman.

o MPE will be borrowing money from a bank to fulfill the contract termination payment (CTP). Both of MPE’s major lenders – CoBank and CFC – have offered to cover the CTP. This is a credit to MPE’s financial strength and illustrates the confidence and support the financial institutions have for this transition. The loan will be paid off over the 20-year timeframe of the Guzman contract.

o MPE’s rebate program will change, and the details are yet to be determined. Although Tri-State’s rebate program has been robust, member co-ops do pay for this service through their cost of power. MPE and Guzman have plans to coordinate on member programs, and Guzman has committed to being a strong partner through community investments of $50,000 annually.

o While rebate programs can be popular, a small percentage of MPE members took advantage of our programs on an annual basis. We are hopeful that, in partnership with Guzman, we can develop new member programs that benefit a greater percentage of our membership.

o MPE currently has around $22 million in capital credits through Tri-State. The portion of these capital credits that have been obligated to MPE members will be paid back to the members over the next 20 years, as always.

o MPE capital credits will continue to be returned to members as is written in MPE’s bylaws. The fact that we are purchasing power from a different supplier does not change that.

o Through this power supply transition, MPE will continue to be a not-for-profit cooperative. Our cooperative business structure is not changing. Many electric cooperatives across the state of Colorado and the nation purchase power from entities that are not cooperatives.

o There is a misconception that certain members drove the power supply transition for environmental reasons. There was not a membership push or demand for this change.

All power suppliers in the state (including Tri-State and Guzman) are moving towards the exact same state-mandated decarbonization requirements.

o This decision was made by the Board of Directors, which is elected by the membership of MPE. The Board made this decision after years of working with Tri-State to try to resolve issues related to price certainty, financial stability, and contractual flexibility.

o The MPE Board has a fiduciary responsibility to the cooperative and made this decision with that in mind while also looking to the long-term future of MPE.

o The membership votes on certain business of the cooperative: election of directors, changes to articles of incorporation, and specific sections of the by-laws. The Board sets the strategy of the cooperative, ensures the financial stability of the cooperative, and hires the General Manager of the cooperative. The power supply decision was within the Board’s responsibilities and authority.